The United States Federal Trade Commission (FTC) and Department of Justice (DOJ) recently released guidance to help healthcare investors determine if a proposed merger and acquisition deal could run afoul of federal antitrust laws.
What are the guidelines?
The guidelines include a list of the practices used by the FTC and DOJ when investigating a merger and acquisition deal for potential antitrust violations. These include review practices for violations of the Clayton Act which essentially prohibits mergers that may substantially lessen competition or create a monopoly, as well as violations of the Sherman Act and the Federal Trade Commission Act.
There are currently eleven guidelines. These include review to determine if the merger:
- Significantly increases concentration in an already highly concentrated market,
- Increases risk of anticompetitive coordination, and/or
- Reinforces an already dominant position creating a monopoly.
The guidelines also note that in the event an industry is moving forward with multiple mergers, the agencies are not limited to a single transaction and can review the whole series.
The DOJ and FTC will use a fact-specific analysis to review each qualifying deal under the guidelines but will also take rebuttal and defense evidence into consideration. An example could include use of the failing firm defense. This option may apply if the acquisition asset is already failing and would no longer play a competitive role in the market without the merger deal.
How will these guidelines apply to my pending M&A deal or investment?
The guidelines are not legally binding. However, they do provide a framework for the federal agencies to use when reviewing deals. Having this insight when reviewing a potential deal can help to better ensure the process moves forward smoothly or provide information that leads you to find another option.
In addition to guidance when reviewing a transaction, the move may also extend the FTC and DOJ’s reach when it comes to their ability to review transactions involving private equity firms — something that generally did not trigger official scrutiny in the past. This can mean that the FTC and DOJ are more involved in healthcare transactions in the future.
The update is reminder of the importance of thorough due diligence when considering a healthcare investment.
Attorney John Rivas is responsible for this communication.